Jackpot For Powerball Hits $725 Million. Here's Your Tax Bill If You Win

Monday night, an estimated $725 million was up for grabs in the Powerball jackpot.

• The prize drops significantly once taxes are removed, making it the seventh biggest ever in the game's history.
• Upon winning a multimillion-dollar jackpot, winners must pay 24% federal withholding.

In the lottery's history, the Powerball jackpot was the seventh largest before Wednesday's drawing, at an estimated $725 million.

Taxes, however, significantly reduce those winnings.

An estimated $366.2 million lump sum or a $725 million annuitized prize is available to winners who score the winning ticket.

According to certified financial planner John Chichester Jr., founder and CEO of Chichester Financial Group in Phoenix, one of the unique aspects of the lottery is that it can be accepted over a 30-year period with annuities. Taxes can be paid in a much more flexible manner this way."

The annuity payment can be invested in a tax-efficient manner rather than resulting in a larger, upfront tax bill, said Chichester.

Powerball jackpot odds are 1 in 292 million.

IRS Receives Nearly $88 Million

It's mandatory that 24% of the multimillion-dollar jackpot is withheld by the IRS before winners see a penny. Over $5,000 in winnings is subject to withholding.

With the cash option, you will receive a cut of approximately $88 million due to the 24% withholding. Most taxpayers, however, think they're free after the 24%, Chichester noted.

He explained, "Twenty-four percent comes off the top, but you have to pay the remaining thirteen percent."

You'll be taxed higher if you win millions in the lottery. As of 2023, the 37% rate applies to single filers with taxable income of $578,126 or more, and to married couples with taxable income of $693,751 or more. By subtracting your adjusted gross income from your standard deductions, you calculate your taxable income.

Taxable income isn't all subject to 37%. A single taxpayer will be taxed $174,238.25 for 2023, plus 37% of his or her earnings over $578,125. Combined taxes for married couples are $186,610.50 and 37% over $693,750.

Millions more could be owed in taxes depending on several factors.

Married Filing Jointly Tax Brackets For 2023

Taxable income	Taxes owed
$22,000 or less	10% of the taxable income
$22,001 to $89,450	$2,200 plus 12% of amount over $22,000
$89,451 to $190,750	$10,294 plus 22% of amount over $89,450
$190,751 to $364,200	$32,580 plus 24% of amount over $190,750
$364,201 to $462,500	$74,208 plus 32% of amount over $364,200
$462,501 to $693,750	$105,664 plus 35% of amount over $462,500
$693,751 or more	$186,601.50 plus 37% of amount over $693,750

Income Tax Brackets for Singles In 2023

Taxable income	Taxes owed
$11,000 or less	10% of the taxable income
$11,001 to $44,725	$1,100 plus 12% of amount over $11,000
$44,726 to $95,375	$5,147 plus 22% of amount over $44,725
$95,376 to $182,100	$16,290 plus 24% of amount over $95,375
$182,101 to $231,250	$37,104 plus 32% of amount over $182,100
$231,251 to $578,125	$52,832 plus 35% of amount over $231,250
$578,126 or more	$174,238.25 plus 37% of amount over $578,125

 

If you live in a state and bought the ticket there, you may also owe state taxes. The top income tax brackets in some states exceed 10%, while they do not tax lottery winnings. 

There are other ways to winbig besides the Powerball. There is now an estimated $500 million jackpot for Tuesday night's Mega Millions drawing. It is estimated that one in 302 million people will hit the jackpot in that game.